Using Figure 11.2, consider an insurance policy that provides free “purple aspirin” to all workers. This benefi t provides no conceivable advantage (workers don’t care whether their aspirin is purple or white) but comes with cost z . Show the new labor market equilibrium indicating the wage and employment impacts.

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Health insurance is negotiated and costs $2 per hour to provide Wage rate W + z 3 W 2 'b' L, L, Employees 2' S $" S' D' D Figure 11.2 Interaction of Health Insurance and Employee Wage